Louis Latour, Inc. v. Virginia Alcoholic Beverage Control Board and The Country Vintner, Inc.

COURT OF APPEALS OF VIRGINIA
Present: Judges Humphreys, Beales and Senior Judge Coleman
Argued at Richmond, Virginia
LOUIS LATOUR, INC.
OPINION BY
v. Record No. 1836-06-2 JUDGE RANDOLPH A. BEALES
MAY 29, 2007
VIRGINIA ALCOHOLIC BEVERAGE
CONTROL BOARD AND THE COUNTRY VINTNER, INC.
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Theodore J. Markow, Judge
Michael J. Lockerby (Walter A. Marston; Kevin R. McNally;
Foley & Lardner LLP; Reed Smith LLP, on briefs), for appellant.
Carla R. Collins, Assistant Attorney General (Robert F. McDonnell,
Attorney General; Frank S. Ferguson, Deputy Attorney General;
K. Michelle Welch, Assistant Attorney General, on brief), for
appellee Virginia Alcoholic Beverage Control Board.
E. Duncan Getchell, Jr. (Stephen D. Busch; M. Stuart North; Erin M.
Sine; McGuire Woods LLP, on brief), for appellee The Country
Vintner, Inc.
Amicus Curiae: Virginia Wine Wholesalers Association, Inc.
(Thomas A. Lisk; Jacqueline S. McClenney; LeClair Ryan, on brief),
for appellant.
Louis Latour, Inc. (“Latour”) appeals a decision of the Circuit Court of the City of
Richmond, which affirmed a decision of the Virginia Alcoholic Beverage Control Board
(“Board”). Specifically, Latour contends that the circuit court erred in failing to apply a de novo
standard of review, and in finding that Latour (1) unilaterally amended its agreement with The
Country Vintner, Inc. (“Vintner” or “TCV”) without good cause; (2) discriminated among its
wholesalers in violation of the Virginia Wine Franchise Act (“VWFA”); and (3) acted in bad
faith in its dealings with Vintner. For the following reasons, we affirm the judgment of the
circuit court.
I.
STANDARD OF REVIEW
“On appeal, we will review the evidence, and all reasonable inferences deducible
therefrom, in the light most favorable to [Vintner], the party prevailing below.” The Country
Vintner, Inc. v. Rosemount Estates, Inc., 35 Va. App. 56, 60, 542 S.E.2d 797, 799 (2001).
II.
BACKGROUND
A. Factual History
On December 10, 1990, Latour entered into a wine distribution agreement with The
Country Vintner, Inc. According to the agreement, Vintner would sell Latour’s wine throughout
the Commonwealth with a primary area of responsibility in Surry and Gloucester Counties.1 It
was understood that Vintner was selling, and intended to continue selling, Latour wine in
Northern, Central, and Eastern Virginia.2 Between December 1990 and April 2003, Latour
permitted Vintner to order as much wine as it could sell throughout the Commonwealth. And,
from November 5, 1999 to April 3, 2003, Vintner was the only wholesale distributor of Latour
wines in the Commonwealth.
1
The original agreement was never distilled to writing. However, forms filed with the
Board in 1990 and 1997 indicate that Vintner’s territory designation was Surry and Gloucester
Counties.
2
In 1990, two other distributors had written agreements to distribute Latour wines in
Virginia. Specifically, King & Roberts was authorized to distribute Latour wine in
Charlottesville, and Virginia Imports had an agreement to distribute Latour wine in Northern
Virginia. In 1996, Virginia Imports and Vintner entered into a brand swap, and thus, Vintner
acquired the Northern Virginia Territory. Subsequently, King & Roberts sold its business to
Broudy-Kantor.
-2-
In 2002, Latour sought to change its marketing strategy, and with the help of Charles
Ducker (“Ducker”), Latour’s new Southeast Manager of Sales, attempted to create a network of
regionally based distributors. Specifically, Latour decided to appoint new distributors with
primary areas of responsibility outside of Surry and Gloucester Counties. Latour planned to mail
distribution agreements to three new distributors,3 receive them back, and file the new territory
appointments with the Board. Latour made these plans without alerting Vintner.
Latour entered into written distribution agreements with three new wholesalers, and on
April 3, 2003, filed the appropriate forms with the Board. On April 18, 2003, Latour sent
Vintner a new proposed distribution agreement. The proposed agreement designated Vintner’s
primary area of responsibility as Surry and Gloucester Counties and required certain
performance measures. For example, it required Vintner to maintain, and file with Latour,
detailed stock depletion reports.4 In essence, Latour intended for this written agreement to
replace the existing franchise agreement which existed “by virtue of prior designations, actions,
understandings, and course of dealings” between Vintner and Latour.5 Vintner refused to sign
the agreement.
In response, Latour sent Vintner a Requirements Announcement (“announcement”),
stating that it was “prepared as a unilateral amendment to the commercial relationship.” The
announcement incorporated all aspects of the proposed agreement and declared that it would
3
The new distributors included Select Wines and Virginia Distributing.
4
The depletion reports were to contain “the names and addresses of the retail licensees to
which [Vintner] ha[d] sold the Latour wines during said month and the volume of sales of the
Latour wines for that month.”
5
By acquiring agreements with the new distributors, Latour hoped to pressure Vintner
into signing the new franchise agreement. The new distributors were subject to a written
agreement, which included, among other things, the requirement for filing depletion reports. As
such, Latour hoped to push Vintner into signing the agreement by indicating that the other
wholesalers in the Commonwealth were subject to the same terms.
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become effective ninety-one days after its receipt by Vintner. The announcement defined
Vintner’s sales territory as Surry and Gloucester Counties, and stated that Latour had no
obligation to “support in any way” sales activities of Vintner related to retailers located outside
of the defined territory. It further provided that Latour could “in its sole discretion allocate the
Latour wines among distributors in any manner” that it deemed in the best interests of Latour.
Vintner objected to all aspects of this announcement and, subsequently, filed a complaint with
the Board.
After Vintner refused to sign the agreement, Latour began offering price discounts and
marketing incentives to the new distributors, Select Wines and Virginia Distributing, and ceased
offering any such opportunities to Vintner.6 Latour gave the new distributors access to Vintner’s
confidential business records in order to facilitate the new distributors’ marketing efforts. Latour
also deliberately delayed the processing of Vintner’s purchase orders, while almost immediately
filling those from the new distributors, and, moreover, never filled two purchase orders
submitted by Vintner.
B. Procedural History
On August 6, 2003, Vintner filed an original complaint with the Board against Latour.
The complaint alleged that Latour violated the VWFA by creating dual distributorships and by
attempting to impose specific performance requirements on Vintner without good cause. On
February 11, 2004, Vintner filed an amended complaint with the Board alleging that Latour acted
6
We note that the record is unclear as to whether Latour failed to offer these price
discounts and marketing incentives to Vintner in general, or just in relation to its sales outside of
its primary area of responsibility. When questioned at oral argument, Latour’s counsel could
only indicate that Latour offered wine tasting events to the new wholesalers within their primary
area of responsibility and that Latour did not offer Vintner the same events outside of its primary
area of responsibility. However, the record does not contain any indication that Latour offered
these services to Vintner within its primary area of responsibility. Based upon our standard of
review, we will view this in the light most favorable to Vintner, the prevailing party below. See
Rosemount, 35 Va. App. at 60, 542 S.E.2d at 799.
-4-
in bad faith and unilaterally amended its franchise agreement without good cause. A Hearing
Panel (“Panel”) heard the case over a seven-day period, and on March 21, 2005, issued an
opinion finding that Latour: (1) violated the VWFA’s dual distributorship provisions;
(2) unilaterally amended Vintner’s agreement with Latour without good cause because the
“modification [of the agreement was] in direct contravention of the Act”; (3) discriminated
among its wholesalers, in violation of the VWFA; and (4) acted in bad faith in its dealings with
Vintner.
Latour appealed, and on November 29, 2005, the Board affirmed all but one portion of
the Panel’s decision. Specifically, “The Board concur[red] with the analysis and findings of the
hearing panel on the issue of Latour’s unilateral amendment of its agreement with TCV. It
likewise concur[red] with the hearing panel on the issues involving unlawful discrimination
between wholesalers and bad faith on the part of Latour.” However, the Board reversed the
Panel’s decision with regard to Latour’s alleged creation of a dual distributorship. The Board
found that Vintner’s “primary area of responsibility [was] Surry and Gloucester Counties, and
therefore, Latour [had] not entered into a dual distributorship situation in [Vintner’s] territory.”
Latour appealed the Board’s decision to the Circuit Court for the City of Richmond. On
June 28, 2006, the circuit court affirmed the Board’s final order, stating that it was “without
error.” Latour timely appealed to this Court.
III.
ANALYSIS
In reviewing the decisions of a regulatory agency, the agency’s findings of fact are
conclusive if supported by the evidence. Rosemount, 35 Va. App. at 62-63, 542 S.E.2d at 799;
see also Code § 4.1-410 (“All proceedings under this chapter and any judicial review thereof
shall be held in accordance with the Virginia Administrative Process Act (§ 2.2-4000 et seq.).”).
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Accordingly, “[t]he reviewing court may reject the agency’s findings of fact only if, considering
the record as a whole, a reasonable mind would necessarily come to a different conclusion.”
Johnston-Willis, Ltd. v. Kenley, 6 Va. App. 231, 242, 369 S.E.2d 1, 7 (1988).
However, “[a]lthough decisions by administrative agencies regarding matters within their
specialized competence are ‘entitled to special weight in the courts,’” id. at 244, 369 S.E.2d at 8,
decisions which involve issues of statutory interpretation require “little deference” because the
issue falls outside the agency’s specialized competence, Sims Wholesale Co. v. Brown-Forman
Corp., 251 Va. 398, 404, 468 S.E.2d 905, 908 (1996); see also Va. Imports, Ltd. v. Kirin Brew.
of Am., LLC, 41 Va. App. 806, 821, 589 S.E.2d 470, 477 (2003). Said differently, “pure
statutory interpretation is the prerogative of the judiciary.” Id. Thus, we review an issue of
statutory construction de novo. See Mattaponi Indian Tribe v. Dep’t of Envtl. Quality ex rel.
State Water Control Bd., 43 Va. App. 690, 707, 601 S.E.2d 667, 675 (2004).
A. The Circuit Court and the Standard of Review
Latour argues that the circuit court erred in failing to apply the de novo standard of
review in reviewing the Board’s final order. Specifically, Latour argues that issues of statutory
construction and the meaning of terms found in the VWFA are questions “which [fall] squarely
[within] the province of the courts.” We agree with the proposition that these issues are subject
to de novo review by the courts, but we find that the record does not support Latour’s contention
that the circuit court failed to apply this standard of review.
We have long held that, “[a]bsent clear evidence to the contrary in the record, the
judgment of a trial court comes to us on appeal with a presumption that the law was correctly
applied to the facts.” Yarborough v. Commonwealth, 217 Va. 971, 978, 234 S.E.2d 286, 291
(1977); Shenk v. Shenk, 39 Va. App. 161, 169, 571 S.E.2d 896, 900 (2002) (“A trial court is
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presumed to apply the law correctly.”); Oliver v. Commonwealth, 35 Va. App. 286, 297, 544
S.E.2d 870, 875 (2001) (“The trial court’s judgment is presumed to be correct.”).7
Here, the circuit court held, “Having reviewed and considered the record before the
Board, this court is of the opinion that the decision of the Virginia Alcoholic Beverage Control
Board is without error.” Even though the circuit court did not explicitly set forth the standard of
review in its holding, on appeal, we presume that in reviewing and considering the record, the
circuit court used the appropriate standard of review. Moreover, during discussion with trial
counsel, the circuit court acknowledged that it was “bound” by the facts as found by the Board.
However, the circuit court also noted that such a deferential standard of review is “not true with
regard to questions of law.” Therefore, because the record does not contain “clear evidence to
the contrary,” we cannot say that the circuit court applied an incorrect standard of review.
B. Dual Distributorships
Neither party appeals the Board’s finding that Vintner’s “primary area of responsibility
[was] Surry and Gloucester Counties, and therefore, Latour [had] not entered into a dual
distributorship situation in [Vintner’s] territory.” Instead, the parties disagree regarding the
impact of this finding. Specifically, Latour argues that the Board’s determination that “Latour
lawfully appointed new wholesalers . . . is legally irreconcilable with the Board’s adoption of the
Hearing Panel’s holdings that Latour nevertheless violated the WFA by engaging in unilateral
amendment, bad faith, and discrimination.” In contrast, Vintner and the Commonwealth argue
that the Board recognized “that the other findings do not depend upon the primary area of
responsibility” and that those findings are “legally unassailable” in light of the Board’s holding.
7
Although in cases such as this, the circuit court functions as an appellate court rather
than a trial court, the principle remains applicable.
-7-
Because neither party presents the issue of Vintner’s “primary area of responsibility” on
appeal, we will not address it. Accordingly, we are bound by the Board’s decision that Latour
had not created a dual distributorship, in violation of the VWFA, and that, according to the
parties’ agreement, Vintner’s primary area of responsibility was Surry and Gloucester Counties.
Therefore, we will approach the other issues on appeal in light of these uncontested facts.
C. Unilateral Amendment and Good Cause
Latour contends that the circuit court erred in finding that it unilaterally amended its
franchise agreement with Vintner without good cause, thereby violating Code § 4.1-406. Vintner
responds that the evidence supports the finding that Latour unilaterally amended the franchise
agreement without good cause, and the fact that Code § 4.1-404’s prohibition of the
establishment of dual distributorships was not violated does not contradict that finding. For the
reasons that follow, we affirm the circuit court on this issue.
1. Unilateral Amendment
Initially, we note that the VWFA does not preclude a winery from proposing changes to
the contractual relationship with its distributors, and we would certainly not uphold the
imposition of any sanctions on a winery for solely proposing changes to its contractual
relationship with its distributor. To do so would be contrary to the VWFA. In the absence of an
agreed upon change (i.e., a bilateral amendment), however, the VWFA also provides a
framework for unilaterally amending an existing agreement. See Code §§ 4.1-406 and 4.1-407.
According to that framework, a winery may not unilaterally amend a contract without good
cause. Id.
-8-
In this case, the Panel explicitly concluded that Latour’s actions “constitute[d] a
unilateral change or modification of an agreement without good cause.”8 In reaching this
conclusion, the Panel noted that Vintner “objected to all aspects of the Requirements
Announcement. Consequently, it was not implemented by Louis Latour as to TCV.” Latour
contends this sentence constitutes a finding that the amendment was not actually implemented
and that, therefore, “the issue of the propriety” of the announcement “has been rendered moot.”
This claim, however, completely overlooks the Panel’s other numerous findings and
explanations that Latour had indeed unilaterally amended the franchise agreement, emphasizing
one phrase over the vast majority of the Panel’s opinion.
The Panel, after noting that Latour did not implement the proposal “as to” Vintner,
immediately then, however, found:
However, Louis Latour delayed orders placed by [Vintner] and
assisted the other distributors by granting them price breaks and
other incentives not offered to [Vintner] in order to enable them to
compete against [Vintner] . . . .
* * * * * * *
[The new distributors] had already been told by Mr. Ducker
[Latour’s Southeast Manager of Sales] that Louis Latour intended
to limit [Vintner’s] supply of wine in order to restrict [Vintner’s]
distribution of Latour wine to Surry and Gloucester Counties. Mr.
Retornaz also testified that this was Louis Latour’s intention. This
is directly contrary to the provisions of Section 404 of the Act in
that such a scheme restricted the sales of Latour wine by [Vintner]
to retailers located within Surry and Gloucester Counties.
* * * * * * *
8
While the dissent questions our examining Latour’s actions subsequent to Vintner’s
receipt of the requirements announcement (i.e., the unilateral amendment), we nonetheless find it
necessary to address those actions given the Board’s factual findings, which Latour challenges
on appeal. With that in mind, we feel we must address Latour’s question presented of whether or
not Latour unilaterally amended, without good cause, its existing agreement with Vintner by
imposing the requirements announcement.
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In the case herein, Louis Latour’s primary objective, in attempting
to force [Vintner’s] signing of the Distribution Agreement and
complying with the Requirements Announcement, was to limit
[Vintner] from selling Latour wines outside of what Louis Latour
considered [Vintner’s] primary area of responsibility. This is in
direct contravention of Section 404 of the Act and makes this case
easily distinguishable from Schieffelin. If anything, Schieffelin
supports [Vintner’s] contentions in this case. [Vintner] had been
the sole distributor for Latour wines in Virginia from 1999 to April
2003. The plan or scheme conceived by Louis Latour was to
enable other distributors to distribute Latour wines in areas of
Virginia formerly serviced by [Vintner] pursuant to a longstanding
agreement and to limit [Vintner’s] distribution to Surry and
Gloucester Counties. This, in the Hearing Panel’s view,
constitutes a unilateral change or modification of an agreement
without good cause. Good cause cannot exist when the unilateral
change or modification is in direct contravention of the Act.
(Emphasis added.)
Latour clearly could not implement all of the provisions of the requirements
announcement because it was impossible for them to implement the provisions that required
Vintner to act. Latour could not unilaterally have Vintner furnish the depletion reports – only
Vintner could perform that provision. Moreover, the requirements announcement, i.e., the
unilateral amendment, contained more provisions than just the requirement for depletion reports.
Paragraph 1 of the requirements announcement stated, in part:
Retail licensees located in such Primary Area of responsibility
shall be considered by Supplier and Distributor as the target market
to which Distributor’s obligation under this contract shall be
focused; moreover, Supplier shall have no obligation to facilitate
or support in any way . . . any activities in which Distributor
chooses to engage relating to retail licensees located outside the
Territory.
Latour implemented as much of this provision as it possibly could unilaterally. For example,
Latour limited Vintner’s ability to sell outside of Surry and Gloucester Counties – in parts of
Virginia that were not part of the other distributors’ primary areas of responsibility where
Vintner had previously been distributing wine -- by refusing to follow previous shipping
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arrangements that were part of the existing franchise agreement between Latour and Vintner.
This is exactly the type of behavior that Code § 4.1-406 was enacted to prevent. See Code
§ 4.1-400(3), (4).9
To find that Latour proposed, but did not implement the amendment would provide
suppliers with an easy loophole to Code § 4.1-406. A supplier could propose an amendment that
includes a part that can only be implemented by the distributor, such as depletion reporting, and
then implement whatever other provisions it sees fit without violating the statute, since the entire
proposal has not been implemented. We find such an interpretation contrary to the purpose of
Code § 4.1-406. Therefore, while the Panel’s preliminary finding that Latour did not implement
the proposed amendment to the agreement “as to” Vintner is accurate (if inartfully worded), so
also is the Panel’s conclusion that Latour actually unilaterally implemented the portions of the
announcement that it could -- on its own -- unilaterally implement.
Finally, the text of the announcement itself states that Latour’s requirements
announcement was, in fact, a unilateral amendment to the existing agreement. The
announcement reads,
The enclosed “Requirements Announcement” has been prepared as
a unilateral amendment to the commercial relationship between
Louis Latour Inc. and The Country Vintner Inc. It essentially
incorporates all of the performance aspects of the proposed
9
We expressly do not hold, as the dissent seems to state (and as we discuss infra), that
the statute requires a winery, such as Latour, to assist a wholesaler in its efforts to distribute the
winery’s product in another wholesaler’s primary area of responsibility. Such a requirement
would create dual distributorships and would violate the statute’s express prohibition against
creating dual distributorships. The statute also does not require a winery to assist a wholesaler
outside the wholesaler’s own primary area of responsibility. However, as noted, the statute
expressly allows a wholesaler to sell the winery’s product outside of the wholesaler’s primary
area of responsibility (and prevents a winery from restricting the wholesaler to its primary area
of responsibility). Furthermore, in this case, the existing franchise agreement required Latour to
assist Vintner in selling outside of Vintner’s primary area of responsibility. It is Latour’s
unilateral implementation of that proposed change to the existing franchise agreement with
Vintner that violates the statute.
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contract, those relating to the distributor’s performance and those
relating to Louis Latour Inc.’s performance.
(Emphasis added.) The announcement also states, “The effective date of the amendments
contained in the Requirements Announcement is the 91st day following the date of receipt by
The Country Vintner, Inc.” 10 Consequently, Latour makes clear that it is unilaterally amending
the existing franchise agreement via the requirements announcement, which notes that the
unilateral amendment takes effect on “the 91st day following the date of receipt by The Country
Vintner, Inc.” Therefore, we affirm the finding that Latour unilaterally amended the parties’
contract, and, in accordance with Code § 4.1-406, Latour must demonstrate that good cause
existed for such a unilateral amendment.
2. Good Cause
We now turn to whether the record supports the finding that Latour unilaterally amended
the parties’ agreement without good cause, in violation of Code § 4.1-406.
Under the VWFA, a winery is permitted to impose requirements on a wholesaler by
unilateral amendment, so long as the winery complies with the requirements set forth in the
VWFA. Code § 4.1-406; Code § 4.1-407. Specifically, Code § 4.1-406 requires that “the winery
first compl[y] with § 4.1-407 and good cause [must] exist[] for amendment, termination,
cancellation, nonrenewal, noncontinuance or causing a resignation.” (Emphasis added.) Code
§ 4.1-406 delineates the parameters of “good cause” as follows:
Good cause shall not include the sale or purchase of a winery.
Good cause shall include, but is not limited to the following:
1. Revocation of the wholesaler’s license to do business in the
Commonwealth;
2. Bankruptcy or receivership of the wholesaler;
10
Code § 4.1-407(A) states, in pertinent part, “a winery shall provide a wholesaler at
least ninety days’ prior written notice of any intention to amend, terminate, cancel or not renew
any agreement.”
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3. Assignment for the benefit of creditors or similar disposition
of the assets of the wholesaler, other than the creation of a security
interest in the assets of a wholesaler for the purpose of securing
financing in the ordinary course of business; or
4. Failure by the wholesaler to substantially comply, without
reasonable cause or justification, with any reasonable and material
requirement imposed upon him in writing by the winery including,
but not limited to, a substantial failure by a wine wholesaler to
(i) maintain a sales volume or trend of his winery’s brand or brands
comparable to that of other distributors of that brand in the
Commonwealth similarly situated or (ii) render services
comparable in quality, quantity or volume to the services rendered
by other wholesalers of the same brand or brands within the
Commonwealth similarly situated. In any determination as to
whether a wholesaler has failed to substantially comply, without
reasonable excuse or justification, with any reasonable and
material requirement imposed upon him by the winery,
consideration shall be given to the relative size, population,
geographical location, number of retail outlets and demand for the
products applicable to the territory of the wholesaler in question
and to comparable territories.
Nothing in this section shall be construed to prohibit a winery from
proposing or effecting an amendment to a contract with a wine
wholesaler in the Commonwealth provided that such amendment is
not inconsistent with this chapter.
Good cause shall not be construed to exist without a finding of a
material deficiency for which the wholesaler is responsible in any
case in which good cause is alleged to exist based on
circumstances not specifically set forth in subdivisions 1 through 4
of this section.
Upon review, “the issue of whether a winery had ‘good cause’ to [unilaterally amend] a franchise
agreement with a wholesaler is a mixed question of fact and law.” Rosemount, 35 Va. App. at
63, 542 S.E.2d at 799.
Latour argues that the unilateral amendment avoided dual distributorships, which are
prohibited by Code § 4.1-404, and that, therefore, “Latour’s amendment was in ‘good faith’ as a
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matter of law.”11 As previously stated, we review issues of statutory construction de novo. See
Mattaponi, 43 Va. App. at 707, 601 S.E.2d at 675. Code § 4.1-404 states that “[e]ach winery
which enters into an agreement with a wine wholesaler shall designate a sales territory as the
primary area of responsibility of that wholesaler which is applicable to the agreement.”12
However, Code § 4.1-404 also states that “the term ‘primary area of responsibility’ shall not be
construed as restricting sales or sales efforts by a wine wholesaler exclusively to retailers located
within the designated sales territory, and any agreement to the contrary shall be void.”
The plain language of the statute commands that the winery “shall” designate a “primary
area of responsibility” for the wholesaler. Furthermore, the statute contemplates that, pursuant to
the franchise agreement, the winery may not restrict the wholesaler’s sales to that “area of
responsibility.” Code § 4.1-404. In other words, the winery may not limit the wholesaler to
selling solely within its primary area of responsibility, nor may the winery qualify the
wholesaler’s sales territory as solely limited to that primary area of responsibility. See Black’s
Law Dictionary 1317 (7th ed. 1999) (defining restriction as “a limitation or a qualification”).
Of course, the statute does not require that the winery assist a wholesaler in its effort to
distribute outside of the wholesaler’s “primary area of responsibility.” However, in this case, the
parties’ franchise agreement did require Latour to assist Vintner outside of Surry and Gloucester
11
Code § 4.1-406 delineates the parameters of “good cause” to cancel or amend an
existing agreement. Appellant, however, uses the term “good faith” in its argument on this issue.
The Virginia Supreme Court has explicitly noted the difference in the two terms as contemplated
by that section. See Sims Wholesale Co., 251 Va. at 405, 468 S.E.2d at 909. Therefore, we will
address the concept of “good cause” in this section and discuss the VWFA’s provision that
requires good faith in all dealings infra.
12
Here, Latour designated Surry and Gloucester Counties as the primary area of
responsibility for Vintner, certain cities and counties in Northern Virginia as the primary area of
responsibility for Select Wines, and certain cities and counties in the Roanoke area, Central
Virginia, and Eastern Virginia as the primary area of responsibility for Virginia Distributing
Company. No other areas of Virginia were designated as any wholesaler’s primary area of
responsibility.
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Counties, and such assistance had taken place throughout the parties’ course of dealing. In other
words, while Code § 4.1-404 does not require that Latour assist Vintner with sales outside of its
primary area of responsibility, the parties’ existing contract did. Code § 4.1-404, rather than
precluding such a contract provision, provides for such assistance by including the provision,
“The term ‘primary area of responsibility’ shall not be construed as restricting sales or sales
efforts by a wine wholesaler exclusively to retailers located within the designated sales territory,
and any agreement to the contrary shall be void.”
Here, Latour admitted before the Panel that it intended to limit Vintner to Surry and
Gloucester Counties. Assisting new distributors, with whom they had recently signed contracts,
in the areas outside each of the distributors’ primary areas of responsibility (i.e., in areas of
Virginia not assigned to any distributor and which were formerly serviced by Vintner), while
disregarding Vintner’s orders for sales in these same areas outside of any distributors’ primary
area of responsibility, were all attempts to limit Vintner’s sales to only Surry and Gloucester
Counties. While Latour is not required by statute to assist Vintner outside its primary area of
responsibility and, in fact, cannot assist Vintner within another distributor’s primary area of
responsibility, Latour cannot impede Vintner’s efforts and ability to sell outside its primary area
of responsibility (while assisting other distributors in this “unclaimed territory”), which Latour
clearly did.13
Latour’s unilateral amendment was, therefore, intended to limit Vintner to its primary
area of responsibility, in violation of Code § 4.1-404. Specifically, Latour intended to use the
13
The Board’s finding that Latour did not violate the prohibition on dual distributorships
contained in Code § 4.1-404, see supra, does not contradict this finding. Code § 4.1-404
contains more than one provision. It both precludes wineries from assigning the same primary
area of responsibility to two distributors and prevents wineries from limiting those distributors to
their primary areas of responsibility. While Latour did not violate the first provision, it violated
the second provision by its unilateral amendments to the contract with Vintner.
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depletion reports from Vintner to limit its supply of wine and, therefore, its distribution territory.
In addition, as the Panel noted:
Latour delayed orders placed by [Vintner] and assisted the other
distributors by granting them price breaks and other incentives not
offered to [Vintner] in order to enable them to compete against
[Vintner]. Louis Latour also gave the new distributors a letter of
authorization to take to the retailers, in areas formerly serviced by
[Vintner], announcing a change in the distribution network . . . .
In short, not only did Latour act without good cause, it also acted in bad faith as discussed infra.
Latour’s actions towards Vintner both before and after Vintner’s rejection of the
proposed written amendment to their contract further establishes that Latour attempted to
unilaterally amend the agreement with Vintner without good cause. Although Latour argues that
the VWFA “anticipates and permits wineries to impose sales volume requirements and to make
comparisons of product demand among sales territories” and “only by requiring depletion reports
of their wholesalers can wineries make such comparisons,” Latour does not offer evidence of any
“material deficiency for which the wholesaler is responsible” nor does Latour argue that any of
the examples of good cause enumerated in Code § 4.1-406 applies in this case. We thus affirm
the finding of the Panel, the Board, and the circuit court on this issue.
D. Discrimination
Latour contends that because the issue of discrimination is “hopelessly intertwined with
the Hearing Panel’s decision regarding the scope of Vintner’s territory,” the circuit court erred in
finding that Latour discriminated against Vintner, in violation of Code § 4.1-415. For the
following reasons, we disagree.
Code § 4.1-415 provides that “[n]o winery shall discriminate among its wholesalers in
any business dealings including, but not limited to, the price of wine sold to the wholesaler,
unless the classification among its wholesalers is based upon reasonable grounds.” In general,
discrimination is defined as “differential treatment; esp. a failure to treat all persons equally
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when no reasonable distinction can be found between those favored and those not favored.”
Black’s Law Dictionary, supra at 479. Thus, according to Code § 4.1-415, no winery may treat
its wholesalers differently unless the winery has reasonable grounds to do so.
In this case, the record reflects that Latour offered direct import pricing, depletion
allowances, and marketing activities to Select Wines and Virginia Distributing. However, the
record gives no indication that the same direct import pricing, depletion allowances, or
marketing activities were offered to Vintner. In essence, Latour allowed the new distributors to
purchase the same wine at lesser prices, compensated the new distributors following the sale of
the wine, and offered free wine to the new distributors. After April 2003, none of these
incentives were offered to Vintner. Moreover, Latour made a conscious decision to immediately
process the purchase orders from Select Wines and Virginia Distributing, while delaying or
simply not fulfilling the purchase orders from Vintner, in order to allow the new distributors to
sell more wine. Thus, the record provides ample support for the Board’s finding that Latour
discriminated against Vintner in favor of other distributors. Accordingly, we affirm the circuit
court on this issue.
E. Good Faith
Latour argues that the circuit court erred in affirming the Board’s finding that Latour
failed to act in good faith, in violation of the VWFA. For the following reasons, we disagree
with this argument as well.
“Good faith” is a legal term of art, and thus on appeal whether a party acted in good faith
is a mixed question of law and fact. Again, we give deference to the factual findings of the
Board and the Panel, but review the application of those facts to the law de novo. See generally
Rosemount, 35 Va. App. at 63, 542 S.E.2d at 799.
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The VWFA requires that, “[e]very agreement entered into under this chapter shall impose
on the parties the obligation to act in good faith.” Code § 4.1-418. Although good faith is not
defined under the VWFA, it is generally defined as “[a] state of mind consisting in (1) honesty
and belief in purpose, (2) faithfulness to one’s duty or obligation, (3) observance of reasonable
commercial standards of fair dealing in a given trade or business, or (4) absence of intent to
defraud or to seek unconscionable advantage.” Black’s Law Dictionary, supra at 701.14
In this case, Latour discriminated against Vintner, in favor of other distributors, in
violation of the VWFA. Moreover, Latour provided confidential business information to the
new wholesalers so that they could compete more effectively with Vintner in territories outside
of Vintner’s and their own primary areas of responsibility. Latour acknowledged that disclosing
the information was wrong and that it did not condone such business practices. Regardless,
Latour argues that because under Code § 4.1-404 a winery is not obligated to facilitate the
wholesaler’s activities outside of the primary area of responsibility, Latour’s actions cannot, as a
matter of law, constitute bad faith. This argument, however, ignores the fact that Latour’s
actions -- delaying and not filling purchase orders, offering incentives to all wholesalers except
Vintner, and disclosing confidential business documents -- went far beyond simply not
facilitating sales outside Vintner’s primary area of responsibility. These actions applied to
Vintner’s entire business and affected its entire operation. Stated another way, Latour frustrated
Vintner’s ability to sell wine anywhere to anyone so that Latour’s new distributors could gain a
competitive advantage and, consequently, increase their market share.
14
The Panel relied upon the Uniform Commercial Code, which defines good faith as
“honesty in fact and the observance of reasonable commercial standards of fair dealing.” Code
§ 8.3A-103; see Johnston v. First Union Nat’l Bank, 271 Va. 239, 244, 624 S.E.2d 10, 12 (2006).
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Because Code § 4.1-418 requires that “[e]very agreement entered into under this chapter
. . . imposes on the parties the obligation to act in good faith” and Latour clearly violated this
obligation, we affirm the circuit court on this issue.
F. Remedies
1. Compensation under Code § 4.1-409
Latour argues that the circuit court erred in granting Vintner compensation in the form of
the value of the agreement, pursuant to Code § 4.1-409, because “Latour had every right under
the WFA to propose amendments without incurring liability,” i.e., Latour had good cause to
amend the parties’ distribution agreement. We disagree.
Code § 4.1-409 provides that,
in any case in which a winery is found to have attempted or
accomplished an amendment, termination, cancellation, or refusal
to continue or renew an agreement without good cause as defined
in § 4.1-406, the Board shall, upon the request of the wholesaler
involved, enter an order requiring that (i) the agreement remain in
effect or be reinstated or (ii) the winery pay the wholesaler
reasonable compensation for the value of this agreement as
determined pursuant to subsection B.
(Emphasis added.) As we have held supra, Latour did not demonstrate good cause to amend the
parties’ agreement. Consequently, the remedy awarded pursuant to Code § 4.1-409 was
appropriate, and we affirm the circuit court on that issue.
2. Attorney’s fees
Latour contends that because the circuit court erred in finding that Latour acted in bad
faith, the circuit court also erred in awarding Vintner attorneys’ fees, pursuant to Code § 4.1-410.
According to Code § 4.1-410, “[t]he Board may, if it finds that the winery or wine wholesaler
has acted in bad faith in violating any provision of this chapter or in seeking relief pursuant to
this chapter, award reasonable costs and attorneys’ fees to the prevailing party.” (Emphasis
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added.) Because we find that Latour acted in bad faith in violation of Code § 4.1-418,15 and
because Code § 4.1-410 allows for attorneys’ fees when a party acts in bad faith in violation of
any provision of this chapter, we affirm the circuit court’s decision to award attorneys’ fees.
IV.
CONCLUSION
For the foregoing reasons, we hold that the circuit court did not err in applying the
appropriate standard of review, in finding that Latour unilaterally amended the parties’
agreement without good cause, in finding that Latour discriminated against Vintner, in finding
that Latour acted in bad faith, in fashioning an appropriate remedy under Code § 4.1-409, and in
awarding attorney’s fees. Accordingly, we affirm the judgment of the circuit court.
Affirmed.
15
The Panel awarded attorneys’ fees stating, “having concluded that Louis Latour acted
in bad faith in its dealings with [Vintner], [Vintner] is entitled to its reasonable costs and
attorneys’ fees under Section 410 of the Act.” The circuit court held that Latour was obligated to
pay Vintner “reasonable costs and attorneys’ fees.”
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Humphreys, J., concurring, in part, and dissenting, in part.
I concur with the analysis and holding with respect to subsections A, B, D and F(2) of
section III of the majority opinion that Latour acted in bad faith and discriminated against
Vintner under the terms of their existing oral agreement. However, for the reasons that follow, I
respectfully dissent from the analysis and holding of subsection C with regard to whether Latour
attempted a unilateral amendment to the franchise agreement without good cause, in violation of
Code § 4.1-404. Furthermore, because I would reverse the circuit court and the Board on that
issue, I also partially dissent from the analysis and holding in subsection F(1) of section III of the
majority opinion, and would remand to the circuit court with direction to remand to the Board to
reconsider the issue of the appropriate sanction limited to the remaining issues.
I. Unilateral Amendment
The primary point of my disagreement with the majority is with respect to the issue of
whether Latour violated Code § 4.1-406 by attempting to amend its agreement with Vintner
through the Requirements Announcement without good cause. The hearing panel found that,
Latour’s primary objective, in attempting to force [Vintner’s]
signing of the Distribution Agreement and complying with the
Requirements Announcement, was to limit [Vintner] from selling
Latour wines outside of what Louis Latour considered [Vintner’s]
primary area of responsibility. This is in direct contravention of
Section 404 of the Act . . . . The plan or scheme conceived by
Louis Latour was to enable other distributors to distribute Latour
wines in areas of Virginia formerly serviced by [Vintner] pursuant
to a longstanding agreement and to limit [Vintner’s] distribution to
Surry and Gloucester Counties. This in the Hearing Panel’s view,
constitutes a unilateral change or modification of an agreement
without good cause. Good cause cannot exist when the unilateral
change or modification is in direct contravention of the Act.
The majority affirms this decision holding that because Latour implemented as much of the
requirements announcement that it could on its own — for example, refusing to follow “previous
shipping arrangements”— Latour unilaterally amended the parties’ agreement for which Latour
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must demonstrate good cause. And because Latour’s professed intention behind the
requirements announcement was to limit Vintner to its primary area of responsibility, the
attempted unilateral amendment to the agreement was done without good cause. I disagree with
the majority and would reverse the Board on this issue.
Initially, I note that the majority has conflated the issue of Latour acting in bad faith with
respect to its obligations under the existing agreement with the issue at hand. While
acknowledging the Board’s factual finding that “Latour did not implement the proposal ‘as to’
Vintner,” the majority then promptly ignores that explicit finding, and holds that “It is Latour’s
unilateral implementation of the proposed change to the existing franchise agreement with
Vintner that violates the statute.” See Footnote 9. Moreover, contrary to the apparent view of
the majority, the question before us is not whether the Board erred in holding that Latour’s
actions subsequent to Vintner’s refusal to accept the requirements announcement constituted a
unilateral amendment to the existing agreement without good cause. Instead, the question
presented is whether the Board erred in holding that the proposed requirements announcement
constituted a unilateral amendment to the existing agreement without good cause.16 In my view,
it did not.
16
The majority characterizes the hearing panel’s factual finding that Latour did not
implement the proposed amendment to the agreement “as to” Vintner as nothing more than a
“preliminary finding.” The majority then asserts that the panel’s “final conclusion” was that
“Latour actually unilaterally implemented the portions of the announcement that it could — on
its own — unilaterally implement.” Characterizing an explicit finding of fact as “preliminary,”
and then substituting its own factual conclusion, is utterly revisionist on the part of the majority.
In point of fact, the plain language used by the hearing panel, and later adopted by the Board and
the circuit court, was that “Latour’s primary objective, in attempting to force [Vintner’s] signing
of the Distribution Agreement and complying with the Requirements Announcement, was to
limit [Vintner] from selling Latour wines outside of what Louis Latour considered [Vintner’s]
primary area of responsibility . . . . This in the Hearing Panel’s view, constitutes a unilateral
change or modification of an agreement without good cause.” (Emphasis added.) In other
words, and contrary to the characterization of the majority, the hearing panel found that Latour,
through the provisions in the announcement, was attempting to limit Vintner to its primary area
of responsibility, in direct contravention of the Code. And although the panel acknowledged that
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Latour’s announcement stated that, (1) “[r]etail licensees located in such Primary Area of
responsibility shall be considered by Supplier and Distributor as the target market to which
Distributor’s obligation under this contract shall be focused;” (2) “Supplier shall have no
obligation to facilitate or support in any way . . . any activities in which Distributor chooses to
engage relating to retail licensees located outside the Territory”; and (3) “Distributor shall
furnish monthly depletion and inventory reports for the Latour Wines to Supplier.” The
requirements announcement also contained a provision stating, “Supplier shall supply the Latour
Wines to Distributor in sufficient quantities to meet the demand for Latour Wines in the
Territory. If however, supply of any Latour Wines in [sic] limited, Supplier may, in its sole
discretion, allocate the Latour Wines . . . in any manner that it determines to be in the best
interest of Latour Wines.”
Vintner argues, and the Board found, that these terms, when considered in light of the
course of dealings between Vintner and Latour, amount to restricting Vintner to selling solely to
retailers within the primary area of responsibility, in violation of Code § 4.1-404. And because
in the Board’s view, the requirements announcement illegally restricted Vintner to its primary
area of responsibility, the Board held that, “Good cause cannot exist when the unilateral change
or modification is in direct contravention of the Act.”
However, in affirming the circuit court and the Board on this point, the majority reaches a
different issue from the one presented to us. As the majority acknowledges, the Virginia Wine
Franchise Act (“VWFA”) clearly does not forbid a winery from merely proposing changes to the
Latour had delayed price orders and given the other distributors price incentives, the panel never
tied these facts to its finding regarding the unilateral amendment without good cause. And
although I agree with the majority that we must “address those actions,” in my view, they are
more properly addressed in the context of discrimination and good faith with regard to
compliance with the existing agreement. They are not, however, properly addressed when
determining whether the requirements announcement, in and of itself, constituted a unilateral
amendment to the agreement without good cause.
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contractual relationship with its distributors, as long as such changes are not unilaterally
implemented except in compliance with the VWFA. Indeed, the VWFA specifically provides
for such amendments, and the Board found — as a fact binding on this Court — that no
unilateral implementation of the proposed amendments had occurred. See Code §§ 4.1-406 and
4.1-407.
In any event, Latour’s announcement to Vintner proposing amendments to the existing
agreement does not forbid Vintner from selling Latour products outside of Surry and Gloucester
Counties, and in fact, would have been void had it done so. Rather, it simply relieves Latour
from any responsibility to actively participate in or promote Vintner’s efforts to sell outside of
Vintner’s primary area of responsibility. Moreover, it allows the winery to allocate its resources
among distributors when quantities of a particular product may be low. Thus, in answer to the
issue actually presented to us, I would hold that the proposed announcement, standing alone, did
not violate Code § 4.1-404.
It seems to me that the chilling effect of the majority’s approval of the Board’s
imposition of sanctions for merely proposing changes in a contractual relationship between a
winery and its distributors, as distinguished from the sanctions that were appropriately imposed
for the actions of Latour with respect to its existing agreement, frustrates rather than furthers the
legislative intent of the statute. Specifically, Code § 4.1-400 clearly indicates that the legislative
intent behind the VWFA was, in part, “To provide for a system of designation and registration of
franchise agreements between wineries and wholesalers with the Board as an aid to Board
regulation of the distribution of wine by wholesalers.” By requiring a winery to facilitate a
wholesaler outside of its designated primary area of responsibility, even pursuant to an existing
franchise agreement, the majority runs afoul of the clear legislative intent to create a territorial
system through which the Board can more easily regulate the distribution of wine throughout the
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Commonwealth. Moreover, by doing so, the majority has in effect encouraged the de facto
creation of a dual distributorship, in direct contravention of the VWFA. See Code § 4.1-404
(“No winery shall enter into any agreement with more than one wholesaler for the purpose of
establishing more than one agreement for its brands of wine in any territory.”).
II. Good Cause
In light of the fact that I believe that the announcement did not violate Code § 4.1-404, I
now turn to whether the remaining facts support the conclusion that Latour’s attempted unilateral
amendment to the agreement was without good cause, in violation of Code § 4.1-406. 17
17
Code § 4.1-406 delineates the parameters of “good cause” as follows:
Good cause shall not include the sale or purchase of a winery.
Good cause shall include, but is not limited to the following:
1. Revocation of the wholesaler’s license to do business in the
Commonwealth;
2. Bankruptcy or receivership of the wholesaler;
3. Assignment for the benefit of creditors or similar disposition
of the assets of the wholesaler, other than the creation of a security
interest in the assets of a wholesaler for the purpose of securing
financing in the ordinary course of business; or
4. Failure by the wholesaler to substantially comply, without
reasonable cause or justification, with any reasonable and material
requirement imposed upon him in writing by the winery including,
but not limited to, a substantial failure by a wine wholesaler to
(i) maintain a sales volume or trend of his winery’s brand or brands
comparable to that of other distributors of that brand in the
Commonwealth similarly situated or (ii) render services
comparable in quality, quantity or volume to the services rendered
by other wholesalers of the same brand or brands within the
Commonwealth similarly situated. In any determination as to
whether a wholesaler has failed to substantially comply, without
reasonable excuse or justification, with any reasonable and
material requirement imposed upon him by the winery,
consideration shall be given to the relative size, population,
geographical location, number of retail outlets and demand for the
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Under the VWFA, a winery is permitted to impose requirements on a wholesaler by
unilateral amendment, so long as it complies with the procedural requirements set forth in the
VWFA. Code § 4.1-406; see Code § 4.1-407.18 Specifically, Code § 4.1-406 requires that in
order to impose a unilateral amendment upon the wholesaler, “the winery [must] first compl[y]
with § 4.1-407 and good cause [must] exist[] for amendment, termination, cancellation,
nonrenewal, noncontinuance or causing a resignation.” (Emphasis added.)
Here, the Board found that Latour complied with the notice requirements as set forth in
Code § 4.1-407. The Board also found that although the proposed agreement was never
implemented, the proposed unilateral amendment to the existing agreement was intended to limit
Vintner to its primary area, in violation of Code § 4.1-404. Thus, because the provisions violated
the VWFA, Latour necessarily could not prove good cause existed to amend the agreement.
Because the Board did not make any other factual findings with respect to its determination of
good cause, and because I would hold that the proposed unilateral amendments alone did not
violate the VWFA, I would reverse on this issue, and remand to the circuit court with
products applicable to the territory of the wholesaler in question
and to comparable territories.
Nothing in this section shall be construed to prohibit a winery from
proposing or effecting an amendment to a contract with a wine
wholesaler in the Commonwealth provided that such amendment is
not inconsistent with this chapter.
Good cause shall not be construed to exist without a finding of a
material deficiency for which the wholesaler is responsible in any
case in which good cause is alleged to exist based on
circumstances not specifically set forth in subdivisions 1 through 4
of this section.
18
Code § 4.1-407(A) states, in pertinent part, “a winery shall provide a wholesaler at
least ninety days’ prior written notice of any intention to amend, terminate, cancel or not renew
any agreement.”
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instructions to remand to the Board for a review of the remedy consistent with this holding and
the results of any further proceedings before the Board.
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